Tuesday, December 22, 2015

Mutual Fund Returns are Annualized or Absolute?

1.Recently one of my freind Dr. Ramswarup Pareek invest in Axis Long Term Equity Fund (G) for tax saving purpose.

2.Axis Long Term Equity Fund (G) is an ELSS you can see top ELSS at this link:-
3.When Shri Pareek visit Icici direct website he found that Axis Long Term Equity Fund (G) give 26.8% returns in last 3 year.
4.Now Dr. RamswarupPareek  has a question "This 26.8% returns is annualized or absolute?
in details if he invest INR 100 in 2012 then in 2015 what he get?
First Option:- He get INR 126.80 if this 26.8% returns is absolute means only 26.8% returns in his 3  year holding period.
Second Option:- He get  INR 203.80 if this 26.8% returns is annualized means after one year his investment grow 26.8% and his portfolio value 126.80 then in second year it again grow 26.8% now his portfolio value is 160.78 and in third year his investment again grow 26.8% means at the end of third year his portfolio value is 203.80.
5.Now he call to Icicidirect and ask this question to there customer care representative .
The customer care officer of Icici Direct told that First option is right and you get only 26.80 rupees return on your investment of 100 rupee in last 3 year plus you get tax benefits on your investments.
6. Shri Ramswarup ji not satisfied from his answer and refer this question to me that I publish an article on this issue with solid proof.
Here is my answer:-
Dear Ramswarup ji,
Option Second is right.
You get total amount  INR 203.80 on your INR 100 investment means after one year this investment grow 26.8% and your portfolio value 126.80 then in second year it again grow 26.8% now your portfolio value is 160.78 and in third year your investment again grow 26.8% means at the end of third year his portfolio value is 203.80.
here are my solid proofs visit these links as my proofs:-

or see this fact sheet from axix mutual fund :-
Thank you for asking such a useful question.
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